Insurers’ anti-concurrent causation clauses create controversy p4

We are finishing up our discussion of anti-concurrent causation clauses, but we would like to reserve the right to revisit the issue. A state that was hit hard by Superstorm Sandy is considering legislation that would address, among other things, anti-concurrent causation clauses in homeowners insurance policies. The insurance industry calls the proposal “misguided, if well-intentioned.”

One insurance professional invoked Florida’s experience with insurance reform after Hurricane Andrew: She said that our own misguided, if well-intentioned, laws sent Florida to the bottom of state rankings for home and auto insurance. At any rate, as the post-Sandy bills work their ways through the lawmaking process, we may come back to ACC clauses.

In our last post, we discussed causation and the principles underlying insurers’ determinations of what, exactly, caused the damage to a home. For the homeowner, the theory may sound unimportant — who cares why the kitchen is gone; I only care that it’s gone — but the theory informs the coverage determination, and any insurance payout depends on that determination.

If ACC clauses seem convoluted to homeowners, perhaps a little history will help. ACC clauses were actually introduced in response to the advent of the doctrine of concurrent causation. The seminal case was in the early 1970s, and not in Florida. That state’s highest court determined that a homeowners insurance company is liable for coverage if the policy covered just one of two or more concurrent events that caused the damage.

That case, however, applied to third-party insurance, not first-party. Third-party insurance covers injuries to, for example, neighbors on the insured’s property. First-party insurance covers damage to the insured’s own property, like his house and garage.

However, lower courts in that state started to apply the concurrent causation doctrine to first-party insurance coverage disputes. By the time the state’s Supreme Court issued another decision clarifying that the doctrine applied only to third-party claims, insurance companies had already started to include anti-concurrent causation clauses in standard policies in that and every other state.

Insurance regulators did not object. After Hurricane Katrina, a couple of state legislatures took steps to limit the applicability of ACC clauses. And now, after Superstorm Sandy, more states are taking a closer look at the language.

We’ll see what happens. The battle between insurers and state lawmakers, spurred on by angry and cash-strapped constituents — could heat up fast. If ACC clauses entered standard policies through the back door, they may go out the front.